Factory Output Gains, Inflation Moves Closer to a Target: What We Learned During the Week of November 16-20

A rarity: solid, broad-based gains in manufacturing activity. Here are the 5 things we learned from U.S. economic data released during the week ending November 20.

#1Manufacturing output expanded for only the 2nd time in 6 months during October. The Federal Reserve estimates manufacturing production grew 0.4% during the month on a seasonally adjusted basis, leading to a still tepid 1.9% year-to-year gain. The increase was spread out across most manufacturing categories. The production of durable goods expanded 0.5% during the month (+1.2% vs. October 2014), its 1st increase in 3 months. Growing by at least 1 percent were the production of nonmetallic mineral products, wood products, electrical equipment/appliances and primary metals. Auto production remained a bright spot in an overall uneven manufacturing sector, with a 0.7% gain during the month and being 10.9% above the 112015graphicyear ago pace. Nonduables production increased for a 4th consecutive month (+0.3%), with sizable gains seen for textiles and petroleum/coal products and a substantial drop in the output of apparel. Overall industrial output fell 0.2%, leaving the metric’s 12-month comparable up a puny 0.3% (its worst since December 2009). Drop offs in both oil well drilling and oil extraction led to a 1.5% decline in mining activity (-6.9% vs. October 2014). Moderating weather conditions resulted in a 2.5% drop in output at utilities.

#2A pickup in the prices for services led to a modest increase in overall consumer prices. The Consumer Price Index from the Bureau of Labor Statistics increased 0.2% on a seasonally adjusted basis during October and was 1.9% above year ago levels. Energy CPI edged up 0.3%, with moderate gains in the prices for gasoline (+0.4%, although they dropped 3.9% before seasonal adjustments) and electricity (+0.4%) but also a drop in the price for utility delivered natural gas (-0.7%). Food CPI grew at its slowest pace since May with a 0.1% increase. Core CPI (net of both energy and food) increased 0.2%, with a 12-month comparable near the Federal Reserve’s target of +1.9%. Prices for core goods slipped 0.1% (the 6th straight month in which it failed to increase), with prices for apparel (-0.8%), used vehicles (-0.3%) and new vehicles (-0.2%) all falling. Gaining were the prices for core services (+0.3%), which included the impact of higher prices for medical care services (+0.8%), shelter (+0.3%) and transportation services (+0.2%).

#3A forward leading measure of economic activity enjoyed a solid rebound in October. The Leading Economic Index (LEI) from the Conference Board gained 0.6% during the month, following 2 consecutive monthly declines, to a seasonally adjusted 124.1 (2010 = 100, +1.6% over the past 6 months). 9 of 10 index components made a positive contribution to the LEI, led by gains with the interest rate spread, stock prices and building permits. The coincident index added 2/10ths of a point to 113.0 (+0.9% vs. April 2015), with 3 of 4 components gaining during the month (nonagricultural payrolls, personal income less transfer payments and manufacturing/trade sales). The lagging indicator also gained 2/10ths of a point to 119.3 (+2.3% vs. June 2015), with 5 of 7 index components improving. The press release characterized business conditions as “improving,” noting that the U.S. economy “remains on track for continued expansion heading into 2016.”

#4While the October headline housing starts data looks bad, most of the decline was centered on multi-family units. The Census Bureau estimates housing starts were at a seasonally adjusted annualized rate of 1.060 million units, down 11.0% for the month and 1.8% from the same month a year earlier. Multi-family starts data tends to be very volatile month-to-month and October was no exception with a 25.1% drop. Meanwhile, starts of single-family homes slowed by a more modest 2.4%. Looking into the future, the number of permits issued for future construction grew 2.4% during the month to 1.105 million permits (SAAR, +2.7% vs. October 2014), with gains in permits for both single-family (+2.4%) and multi-family (+6.8%) homes. While the number of home completions slowed 6.0% during the month to a SAAR of 965,000 units, it remained 5.2% above year ago levels.

#5Homebuilder sentiment cooled slightly in November, but remained near 10-year highs. The Housing Market Index (HMI) from the National Association of Home Builders lost 3 points to a reading of 65. With the exception of October’s 68 reading, this was the best seen since October 2005. The index lost 5 points in the South and shed a point in the Midwest, but added a point in the West and was unchanged in the Northeast. While the index for current sales lost 3 points (to 67) and that for expected sales declined by 5 points (to 70), both remained near post-recession highs. Meanwhile, the index for index of potential traffic added a point to 48, its best reading in 10 years. The NAHB’s press release noted that the association expected the housing market should remain strong given both “a firming economy” and “affordable mortgage rates.”

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending November 14, 2015, seasonally adjusted): 271,000 (-5,000 vs. previous week; -21,000 vs. same week a year earlier). 4-week moving average: 270,750 (-5.9% vs. same week a year earlier).
Minutes from the October meeting of the Federal Open Market Committee
– Treasury International Capital Flows (September 2015, Net Long-Term Securities Purchases by Non-Americans): +$9.4 billion (vs. -$21.5 billion in August 2015)
Mortgage Delinquency Rate (3rd Quarter 2015, seasonally adjusted): 4.99% (-31-basis points vs. Q2 2015; -86-basis points vs. Q3 2014).

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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